Times are changing: Bitcoin instead of traditional loyalty points

Bank Frick

This week, our blockchain experts assessed the following topics:

Our bi-weekly Crypto Industry Report provides you with valuable information on the global crypto industry – picked and analysed by our blockchain experts.

Times are changing: Bitcoin instead of traditional loyalty points

Seemingly every other month, Mastercard announces a new partnership to expand its crypto offering. Telling by its latest announcement the multinational financial service corporation has entered a new partnership with Bakkt. The company Mastercard has partnered up with is a three-year-old digital asset platform that has just recently gone public on the New York Stock exchange. Together the two companies want to give cryptocurrency payments another boost as Mastercard’s customers will be able to spend their crypto holdings to pay for purchases at Mastercard’s merchants.

These merchants will also have the option to offer bitcoin as rewards in lieu of traditional loyalty points. Mastercard customers earning the cryptocurrency will be able to hold it in Bakkt’s digital wallet. Also, traditional loyalty points they have already received can be converted into bitcoin. With this move, Mastercard is upping the ante when it comes making sure that crypto is becoming a big part of their offering. Its rival Visa has already partnered with cryptocurrency start-ups like BlockFi or Crypto.com to offer credit and debit cards that let users earn cryptocurrencies.

Self-custody or custodial wallet?

What’s significant about Mastercard endeavour with Bakkt is the fact that banks will also be able to issue cryptocurrency-linked debit and credit cards. Now that the possibility is here, it remains to be seen whether this offering will take off. It not only depends on the banks’ appetite to launch such cards but also on their customers’ demand to use them.

So while, this new partnership made news the other day, some remain sceptical as the offering will be based on a custodial wallet. After all, using a custodial wallet is against cryptocurrencies original intent. Operating with a custodial wallet is usually seen as the only viable way as, apart from crypto geeks, no one wants to handle their own private keys with a non-custodial wallet. But is this really true? Recent news from popular fintech Robinhood would suggest otherwise. Its waitlist for taking self-custody has already over 1 million sign-ups.

Bitcoin ETF is live in the US: What’s the story?

On the 18th of October, the first Bitcoin ETF launched in the US. This day was a highly anticipated incident and it did not disappoint. The ProShares Bitcoin Strategy ETF broke all records as it saw more trading volume on its first day than any ETF in history. In the first hour and a half of trading alone, more than $400 million worth of ETF shares were traded and it took the popular investment vehicle only two days to blast through $1 billion.

A few days on, a second Bitcoin ETF went live. The Valkyrie Bitcoin Strategy ETF debuted on the 22th of October and was considered a success too. With only 3.1 million shares on its launch day, a lot less shares changed hands though when compared to ProShares that managed to have 24 million shares traded.

Now that the two first US-Bitcoin ETFs are publicly tradable, competition is heating up. As a matter of fact there are still several other Bitcoin ETFs awaiting approval in the US. Another imminent one might be Van Eck’s Bitcoin strategy ETF. Compared to the two Bitcoin ETFs already out there charging a fee of 95 basis points, Van Eck signalled to only charge a management fee of 65 basis points. This is quite an undercutting of fees, something the ETF industry is known for. Since lower fees benefit end customers, price competition is surely welcomed.

Bitcoin ETF investors have to think thoroughly

Some point out though that it’s not all roses when it comes to these newly launched ETF. One criticism is that the current Bitcoin ETFs are futures based. This means that they do not invest in Bitcoin directly but futures contracts trading on the Chicago Mercantile Exchange. Because these futures expire, they need to be rolled, meaning that new futures contracts need to be bought by their issuers. Most of the time though, longer dated futures contracts cost more, which is why the issuer could be obliged to sell cheaper futures that expire to buy more expensive futures. This situation is referred to as contango bleed and is obviously disadvantageous for the ETF’s buyer. 

So, these toll costs as well as fund fees can make a Bitcoin ETF’s performance deviate from Bitcoin’s actual performance. Investors willing to invest in today’s US-Bitcoin ETFs should think twice. Alternatively they could either invest directly or wait for a so-called spot ETF that buy bitcoin instead of futures. After all, experts are confident that the launch of Bitcoin futures ETFs is the first step on a journey that could finally lead to physically backed, cheap and highly liquid ETFs after all.

Bitcoin and China: It’s complicated

China seems rather undecided. For the last few years, the country has gone back and forth when it comes to handling cryptocurrencies. Until this September: On the 24th of that month, Chinese authorities put digital currency mining to its list of outdated industries. This followed a crackdown back in May that drove virtually all Bitcoin miners out of the country. But not only mining was targeted. The People’s Bank of China also came out against trading cryptocurrencies or any other activity related to them. Notably, there was even a directive coming out of China that overseas crypto exchanges like Binance or Huobi are banned from providing services to mainland Chinese users.

What seemed to be a definite move on the part of China now takes another comical twist with recent news coming from the land of the middle. Although the ban has been spoken already, China’s National Development and Reform Commission (NDRC) announced that it is looking for public feedback on its decision to include bitcoin mining on its list of phased-out industries. This comment period will last until November 21th. According to the Chinese authorities, they will then evaluate the feedback received.

US open for miners

What prompted them to take this step can only be speculated on. Some think, Bitcoin’s sky-rocketing price is responsible, while others – on a more serious note – think that China might be disturbed by US’s new-found dominance, particularly when it comes to Bitcoin mining. After all, states like Texas or Florida have invited miners abandoned in China to move their equipment to the United States. And as the numbers reveal, they did so with success.  According to a recent data form the University of Cambridge the US accounts for more than a third of the global Bitcoin mining activity. This was noticed by China.

The question remains: Will China unban bitcoin mining and cryptocurrency trading after they have shied away all the miners? It’s at least a possibility as China has gone on and off banning Bitcoin several times in the past. Some in the Bitcoin community don’t even want to go back as the Great Migration away from China is leading to hashrate distribution, which makes bitcoin mining more decentralised. So, while the ban has been positive for Bitcoin at large, Chinese investors that are bullish on the space have seen the rug pulled from beneath them. As rumour has it though, some investors are already making efforts to register companies overseas to bypass the domestic trading restrictions.

Nigeria’s eNaira CBDC Goes Live

Real-live CBDC projects are slowly but steadily entering the scene. The latest project to see the day of light is eNaira, a central bank digital currency from the Central Bank of Nigeria (CBN). It has gone live on 24th of October and was developed by Bitt, a fintech company that is also behind the Eastern Caribbean Central Bank’s CBDC project. According to the central bank’s governor, some 500 million eNaira (around $1.21 million) have already been minted into existence.

The CBDC’s main goal is to act as a complement and not a replacement to Nigeria’s physical cash already used. This is expressed by the slogan “same Naira, more possibilities” as this new form of currency is projected to bring all of the benefits usually associated with CBDCs: A more resilient payment system, a reduction in the cost of processing cash, enabling direct welfare disbursements, or encouraging financial inclusion and more efficient cross-border payments. These intentions and goals have all been laid out in the design paper accompanying the launch of the eNaira. The design paper also indicates that the eNaira will be a hybrid CBDC with a two-tiered CBDC architecture. While the central bank will issue the CBDC it will leverage the existing financial system for distribution.

High cryptocurrency adoption

The rapid roll-out of their own CBDC has surely also been influenced by the Bitcoin’s rapid ascent in Nigeria. Back in February of this year, Nigeria’s central bank drew attention by releasing a ruling that ordered all financial institutions to stop facilitating crypto transactions. Despite this ruling, the use of peer-to-peer trading seems to be alive and well in Nigeria. After all, the country’s cryptocurrency adoption is among the highest compared to the rest of the world as data from a recent Chainalysis report showed. By launching the eNaira just now, officials might hope to slow this trend down.

Market Update: What does Shiba Inu tell us about the state of the market?

Double top or end-year bull run? This is what crypto enthusiasts have been speculating about for the past few days. What is certain: Bitcoin’s latest run-up left many people amazed. In only three months, the cryptocurrency managed to get off its lows around $29k on July 20th to shoot all the way up to a new all-time high around $66k on the 20th of October. Also, the second largest cryptoasset Ether followed suit and broke its previous price record.

After its 60% rally in October, Bitcoin took another 10% correction. With open interest returning to all-time high levels and funding rates turning highly positive as well – both indicators on how much leverage there is –, a price correction was inevitable as bitcoin showed signs of being short-time overbought.

November bull run incoming?

While some speak of a bull trap and think that the Bitcoin price will lose steam, others believe that the price correction is a sign of flushing out leverage, which prepares the cryptocurrency for another leg up. They allude to the fact that when Bitcoin rallies past a previous all-time high, the cryptocurrency historically goes into all-time high mode and stay there for a couple of months. Critics again counter with the argument that the price of another Memecoin going nuts just now – this time it’s the Ethereum based Shiba Inu – is a classic top sign. After all, back in early May it was Dogecoin that rallied to astronomical highs right before Bitcoin started its descent to what turned into a 50% correction.  On the positive side, some investors expect bullish news in November. As the latest SEC filings show, Tesla has indicated that it might restart the practice of accepting cryptocurrencies for its products and services after suspending it earlier this year. A milestone that is coming up for sure is the Taproot upgrade, which is said to enhance privacy as well as scalability with Bitcoin on its base layer. As always, there’s obviously a debate over whether or not such an event has already been priced in. This is yet to be seen.

Bank Frick Crypto Industry Report
Bank Frick
Bank Frick is a family-run enterprising bank serving intermediaries with a strong expertise in funds and emissions and a focus on blockchain banking.